Alternative Options For Delisting Under Turkish Law

There are two alternative options for delisting of a public company quoted in Istanbul Stock Exchange which have been stipulated under the new Communiqués of the Capital Markets Board of Turkey (“CMB”).  The “Communiqué on Common Principles regarding the Significant Transactions and the Retirement Right” of the Capital Markets Board (“CMB”) which has been published in the Official Gazette and which came into force on 24.12.2013 contemplates delisting option by way of a mandatory tender offer for delisting whilst the “Communiqué on the Right to Squeeze Out and the Right to Sell” of the CMB which has been published in the Official Gazette dated 02.01.2014 and which will come into force on 01.07.2014 delisting option by way of squeeze out resulting in a delisting of the public company. 
 
“Controlling Shareholder” has been defined in the above stated Communiqués as “real persons or legal entities which directly or indirectly own at least 95 per cent of the voting rights of a corporation individually or by acting together with others”.
 
In order for a shareholder of a public company to reach 95 per cent of the voting rights of such public company, the shareholder in question may (i) launch a voluntary tender offer to purchase additional shares of the minority shareholders from the stock market; (ii) purchase additional shares of the minority shareholders from the stock market; or (iii) enter into individual transactions with the minority shareholders and realise the purchase on the whole sales market of the stock exchange. 
 
Once a shareholder of a public company becomes a Controlling Shareholder, it may ask the public company to take a Board of Directors Resolution for delisting.  Delisting decision must be approved by the General Assembly of the public company and triggers the obligation for the Controlling Shareholder to launch a mandatory tender offer. 
 
Exercising the right to squeeze-out allows purchasing or canceling shares with no mandatory tender offer and also triggers a right of minority shareholders to sell their shares.  Rules about the price are the same for the squeeze-out and the right to sell which are stated herein below.
 
Once a shareholder of a public company becomes a Controlling Shareholder, the right to squeeze out arises for such shareholder. 
 
The main differences of this option from the first option are as follows: in the first option, when the shareholder reaches 95 per cent of the voting rights of the public company, the Board of Directors of the public company takes a resolution regarding delisting and then the required procedures for the purposes of delisting including a mandatory tender offer are followed whilst in the second option, when the shareholder reaches 95 per cent of the voting rights of the public company, the shareholder exercises its right to squeeze out without the need for a Board of Directors Resolution of the public company and then the required procedures, which do not include a mandatory tender offer (which requires the preparation of an Information Form, signing of an Intermediary Agreement and obtaining the CMB’s approval) and which result in the delisting of the public company, are followed. 
 
The right of the remaining shareholders to sell to the Controlling Shareholder shall arise within three months following the date on which the right to squeeze out has arisen for the Controlling Shareholder.  Within that three month period, even if the Controlling Shareholder ceases to be a Controlling Shareholder, the right to sell shall be exercised until the end of such period.  Within this process, in the event that the Controlling Shareholder makes a Material Event Statement to the effect that the Controlling Shareholder shall use its right to squeeze out due to an additional purchase of shares excluding the purchases realised by the Controlling Shareholder due to the exercise of the right to sell, the right to sell cannot be exercised by the remaining shareholders as of the date of such Material Event Statement.  However, the requests of the shareholders which have made applications to exercise their rights to sell prior to such Material Event Statement shall be finalised without waiting for the process regarding the use of the right to squeeze out. 
 
The remaining shareholders shall submit their requests to use their rights to sell to the public company in writing.  The public company should (i) conduct a research as to whether or not such shareholders are actually shareholders; (ii) assess the purchase price pursuant to the same calculation as in a squeeze out process and (iii) notify the request of the shareholders to the Controlling Shareholder within at the latest three business days following the date of receipt of such request by registered mail return receipt requested. 
 
The Controlling Shareholder should deposit the purchase price of the shares to the account of the public company within at the latest six business days following the receipt of such request.  On the first business day following the deposit of the purchase price to the account of the public company by the Controlling Shareholder, the purchase price is paid to the shareholders who have requested to use their right to sell by the public company and the transactions regarding the transfer of the shares are finalised following such payment. 
 
During the process regarding the use of the right to squeeze out and right to sell, the purchase price of the shares shall be paid in Turkish Liras in cash. 
 
The purchase price is specifically covered and should be the arithmetic average of the weighted average price in the stock exchange within the last 30 calendar days prior to the date on which it has been disclosed to public that the shareholder has become a Controlling Shareholder (i.e. the date on which the shareholder has disclosed to public that it has reached 95 per cent of the voting rights of the public company) or that the shareholder has purchased additional shares while it is already a Controlling Shareholder.  This price is a fixed price and there is no reference or requirement for another pricing index or mechanism.  The calculation does not need to be supported by a third party calculation report.
 
There are also various public disclosure requirements which have to be fulfilled by the Controlling Shareholder under both options. 
 
Gülperi Yörüker (LL.M)
Attorney at Law